The respected Central Banker W Wijewardana says today in an article written by him to the Financial Times that Rajapaksa administration had made a serious policy error when it announced an unsolicited, attractive tax concession to income taxpayers and value-added taxpayers.
When this was announced in the President’s election manifesto in November, 2019, I wrote in this series in December 2019 that the new Government should not implement it because it will make a serious dent on the revenue base of the Government (available at: https://www.ft.lk/columns/Tax- cuts-Control-the-damage-before-the-unconventional-stimulus- backfires/4-691207). Further he says In this article, I argued that the estimated revenue loss would be around Rs. 650-80 billion or 4% of GDP which could not be afforded by the Government at that time.
This was before the outbreak of the COVID-19 pandemic. The actual loss compared to the actual tax revenue of 2019 was Rs. 516 billion. However, had the old tax regime remained in force and the Inland Revenue had realised the targeted revenue of 13% of GDP, the loss in the potential revenue by the Government in 2020 had amounted to Rs. 600 billion. This is 4% of GDP. The potential revenue loss during 2021, 2022, and 2023 will also be around 4%
of GDP and this is a serious dent in the revenue base of the Government”. The deposed self anointed economic guru PB Jayasundara was the architect of this plan. He listened to no one . Given that the President knew nothing of economics he left it to Jayasundara to do as he wanted.
Jayasundara appointed a CBSL Governor well passed his prime and a Secretary to the Finance ministry who played a key role in the Yahapalana Government, RS Attygalle. His favorites like Dr Keneth de Silva another self proclaimed economist was appointed as Chairman of the Policy Consultative Committee of the Central Bank. Jayasundara forced out respected Economist Dr Dushini Weerakoon and Veteran Banket Nihal Fonseka from the CBSL board.
Jayasundara went a step further by removing directors and chairmen of banks to install his cronies. It is alleged that he appointed an ex Finance ministry official and her husband both to bank boards. Another lawyer practicing with the ex official in the practice to another Bank. They were also given work in the Portcity according to the print media. Today Sri Lanka is facing the biggest food crisis again due to failed experiment of the President and Jayasundara. Clearly according to sources Jayasundara was the architect and another ploy to save USD. It was certainly penny wise, pound foolish.
Today there is no point in putting the blame on Covid 19. When stupid economic decisions were made against all advice. As Wijewardana points out “Advice was not heeded to, and the way-out for the Government was to resort to the banking sector for financing the budget. Accordingly, during 2020 and 2021, the Government had borrowed from the banking sector, that is, the Central Bank and commercial banks, a net sum of Rs. 3,500 billion marking an increase by 125%.
This is a colossal sum. Accordingly, the total money stock in the country had expanded during this period by Rs. 3,023 billion or 40%. The unintended consequence of this extraordinary money growth was the building of inflationary pressure in the domestic economy, on one side, and depletion of foreign reserves putting pressure for the rupee to depreciate in the market, on the other”. Today food inflation is over 25%, the Rupees unofficial rate is 250+. Sri Lanka LCs are disregarded. Our ratings are junk. Creating all this mayhem Jayasundara has officially retired to write a book. But unofficially it is said Jayasundara is mentoring the
Finance minister. The opposition should demand an impartial inquiry into this negligence and mismanagement of the economy by Jayasundara and his team.
This is public money and public livelihoods, not Jayasundara’s private wealth to experiment. Those who are found guilty for this humongous economic crisis. Should be severely reprimanded now or later. Sri Lanka has today become a global beggar . Because of excesses of pig headed bureaucrats and politicians. What is the JVP, UNP and SJB waiting for?
Adolf
